U.S. job growth rebounded sharply in March as a strike by healthcare workers ended and temperatures warmed up, but downside risks for the labor market are mounting from a war with Iran that has no clear end in sight.
The biggest increase in nonfarm payrolls in 15 months reported by the Labor Department in its closely watched employment report on Friday followed a sharp decline in February. Still, the rebound overstates the labor market’s health. The average workweek was shorter last month.
While the unemployment rate fell to 4.3% from 4.4% in February, that was because 396,000 people dropped out of the labor force. That more than offset weakness in household employment. Economists said March was too early to capture the fallout from the Middle East conflict, with some expecting that could become evident as soon as April’s employment report.
“Payrolls boosted by one-time factors; the trend still looks weak,” said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
Nonfarm payrolls increased by 178,000 jobs last month after a downwardly revised 133,000 drop in February, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast payrolls rising by 60,000 jobs after a previously reported 92,000 decrease in February.
Estimates ranged from a loss of 25,000 positions to a gain of 125,000 jobs. Payroll employment has been little changed in the past 12 months.
March’s employment report likely has no impact on the interest rate outlook, with the effects of supply chain disruptions from the conflict still to work their way through the economy. The odds of a rate cut this year have greatly diminished. The Federal Reserve left its benchmark overnight interest rate in the 3.50% to 3.75% range last month.
The healthcare sector accounted for most of the job gains, adding 76,000 positions, partly reflecting the return to work of 35,000 employees at physicians’ offices following a strike. Employment also increased at hospitals.
Federal Government Payrolls Decline Further
Warmer weather boosted construction employment, which increased by 26,000 positions. Transportation and warehousing payrolls increased by 21,000 jobs. Employment in transportation and warehousing is down by 139,000 since reaching a peak in February 2025.
There were further gains in social assistance employment. But federal government employment declined by another 18,000. Since reaching a peak in October 2024, federal government employment is down by 355,000, or 11.8%. There were job losses in the financial activities sector.
The labor market has been buffeted by uncertainty, starting with President Donald Trump’s aggressive import tariffs. Just as some of the clouds were starting to clear, the U.S. Supreme Court in February struck down the duties, which Trump had pursued under a law meant for use in national emergencies.
Trump, however, responded by imposing a global tariff for up to 150 days. Data from the BLS this week showed job openings decreased by the most in nearly 1-1/2 years in February, pointing to slipping labor demand.
At the end of February, the U.S. and Israel launched strikes against Iran, sending global oil prices soaring more than 50%, and boosting domestic gasoline prices. Economists said the war, now in its second month, was another layer of uncertainty for businesses, and they expected a hit on the labor market in the just-started second quarter.
The national average retail gasoline price this week topped $4 a gallon for the first time in more than three years.Â
This will feed through to higher inflation and erode households’ purchasing power, offsetting some of the strength in wage growth, and slowing spending. The war wiped about $3.2 trillion from the stock market in March. Trump on Wednesday vowed more aggressive strikes on Iran.Â
Mass deportations by the Trump administration have also contributed to labor market paralysis, economists said, by reducing supply, which ultimately hurts demand for goods and services, and workers.
The average workweek eased to 34.2 hours from 34.3 hours in February. Average hourly earnings rose 0.2% after increasing 0.4% in February. Wages increased 3.5% in March year-on-year after advancing 3.8% in February.
(Reporting by Lucia Mutikani; Editing by Dan Burns and Andrea Ricci)
